Goldman Sachs’ Conviction Buy List For Mutual Funds

Goldman Sachs’ Conviction Buy List For Mutual Funds

As the market continues to age, stock pickers are having a more and more difficult time finding good stocks that meet their criteria. However, large cap mutual fund managers have been having a very successful start to 2015, according to analysts at Goldman Sachs.  During 2014, only 11% of large cap value mutual funds beat the Russell 1000 large cap index.  Year to date in 2015, however, 76% of large cap value mutual fund managers are beating the Russell 1000.  That being said, the average large cap core fund is still slightly underperforming the S&P 500 year to date, with a 3.5% return compared to 4% for index.  Goldman Sachs analysts released two lists of conviction buy and sell lists designed to help managers gather some stocks that are overall underweight in the value mutual fund industry.

Funds still underperform S&P 500 due to poor stock picking in consumer discretionary

As Goldman Sachs analysts point out, stocks such as Netflix, Amazon, and Yum are up 84%, 39%, and 28%, respectively.  Large cap mutual funds have been underweight these top performing stocks and have been, instead, overweight in poorly performing stocks.  Three stocks that funds were overweight that underperformed were Comcast (up 1.4% YTD), Lowe’s Companies, Inc. (1.96% YTD) and Time Warner (-0.82% YTD).  As you can see, fund managers stuck with stocks that not only underperformed the board market, but also the sector as well.

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Amazon, Bristol-Meyers Squibb, and Bank of America among top of conviction buy list

Conviction Buy List Mutual Funds

As we reach the half way point of 2015, some managers conduct rebalancing and portfolio maintenance, to help prepare the portfolio for the second half of the year.  Goldman Sachs analysts aided in the task by providing their top buy and sell convictions.  The analysts are recommending the large cap fund managers to pick up stocks that the overall industry is predominantly underweight.  For instance, the top three stocks on Goldman’s buy list are, Inc., Bristol-Meyers Squibb, and Bank of America.  The top three stocks on their sell list are Occidental Petroleum, Boeing, and Omnicom Group Inc.

Overall, value fund managers are doing better than they did in 2014, but there are still some areas that could improve. Goldman Sachs sees alpha for value fund managers being in the shares where the overall industry is largely absent and sell stocks were there is heavy concentration by others in the industry.

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